US open: Heavy losses on the Street following heightened tensions with China
Wall Street trading kicked off on Tuesday with heavy losses across the board as relations between the US and China took another turn for the worse.
At 1550 BST, the Dow Jones Industrial Average had lost 1.32% to 24,657.65, while the S&P 500 was down 0.78% to 2,725.25 as the Nasdaq dropped 1.04% to 7,666.15.
Connor Campbell, a financial analyst at SpreadEx, said, "There was no let up on Tuesday, the US open extending the disastrous trading that began on Monday."
"Plunging 400 points to hit a 2-week nadir, the Dow Jones was the latest index to display its abject terror at the trade war Donald Trump seems intent on provoking. The Dow’s day was made worse by the strength of the dollar; though the greenback struggled against the yen, it stomped all over the euro and the pound, sending the single currency and sterling to 19 day and 7-month lows respectively," added Campbell.
On Monday, Donald Trump instructed his country's trade representative to identify a new $200bn-worth of goods on which to levy 10% tariffs. He also called for a separate list to be prepared detailing a further $200bn-worth of Chinese goods that could be targeted if Beijing responded with countermeasures of its own.
The moves overnight followed Beijing's decision to retaliate for the duties on $50bn-worth of Chinese goods that Washington had announced last week.
China's Ministry of Commerce responded immediately on Tuesday morning, describing the move as "extreme pressure and blackmail".
Trump said in his statement that by retaliating with its own tariffs rather than altering its practices, China was "threatening US companies, workers, and farmers who have done nothing wrong".
To make matter worse, the US Senate also passed an amendment to the Defence Bill 85-10 that includes a measure to kill the recent deal Trump made to save Chinese technology company ZTE. The House of Representatives still needs to pass the amendment.
Oanda analyst Craig Erlam said: "With China showing no desire to be bullied into submission, with its Commerce Ministry promising to retaliate to any new tariffs and its Foreign Ministry reaffirming that while it doesn't want a trade war, it's not afraid to engage in one, it's difficult to see how and when this ends. Moreover, it's difficult to fully grasp just how much damage will be done in the process, particularly with the European Union also drawing up counter-tariffs against the US.
"The clear escalation that's occurred in recent days has shaken investors and appears to brought an end to the good run that US stock markets had been on since the start of May. While Chinese stocks are faring much worse at the moment, US companies are obviously not immune to a trade war and could come under more pressure unless both sides find a solution," Erlam added.
In corporate news, electric car maker Tesla dropped 5.22% following a report that chief executive Elon Musk said an employee had attempted to sabotage the company in an email sent to employees on Sunday night.
Elsewhere, Foundation Medicine shot up 28.42% after Switzerland's Roche said it will buy the remaining shares in the company it does not already own in a $2.4bn deal.
On the data front, US housing starts rose more than expected in May, to a 10-year high, according to data released by the Commerce Department on Tuesday.
Housing starts were up 5% from the revised April rate to a seasonally-adjusted annual rate of 1.35m, versus expectations for a smaller gain to 1.30m. The April rate was revised to 1.286m from 1.287m.
Single-family housing starts were up 3.9% from April to a seasonally-adjusted rate of 936,000, while permits for new construction were 4.6% below the revised April rate at a 1.30m, versus expectations for a rate of 1.35m.